Weather, not markets, will decide winter electricity prices, says expert
Several risk factors are pushing up electricity market conditions in the Baltics and Nordics this winter, but analyst Tiit Hõbejõgi says weather will ultimately determine whether prices spike or stay moderate.
As winter approaches, consumers are once again asking whether electricity prices will rise sharply. Writing for ERR News, analyst Tiit Hõbejõgi says no one can answer that with certainty, but several factors this year increase the risk compared to recent winters.
Three drivers of higher prices
First, global gas prices have risen nearly two and a half times over the past year, partly due to tensions in the Middle East, while Europe's gas storage is only 67 percent full heading into autumn — the lowest level since records began in 2011. Since gas plants often set the market price during peak demand, higher gas costs ripple through the wider electricity market. The variable cost of running a gas plant has risen from about €100 to €180 per megawatt-hour over the past year.
Second, Nordic hydropower reservoirs are at their lowest level in 30 years, following a cold winter and a hot, dry summer. Cheap hydropower has historically helped keep Nordic prices below continental European levels, but if reserves don't recover this autumn, the region's ability to export cheap electricity — including to Estonia — will shrink.
Third, rising CO₂ quota prices are increasing costs for fossil-fuel power plants across Europe.
Weather could soften the blow
Hõbejõgi stresses these risks don't guarantee an expensive winter — much depends on weather. A rainy autumn would help refill Nordic reservoirs, windy conditions would boost renewable output, and milder temperatures would reduce demand. New wind capacity added in the Baltics this year — equivalent to roughly three Auvere power plants (900 MW) — plus 500 MW of new battery storage should also help stabilize prices. Favorable wind this month has already kept electricity prices 35 percent below last year's levels, despite higher gas costs and low Nordic water reserves.
Fixed versus market-price contracts
Consumers who prioritize predictability may prefer fixed-price contracts, while those able to shift consumption to cheaper hours may benefit more from market-price deals. Notably, last winter's cold weather meant fixed prices set in autumn ended up cheaper than the average market price — contrary to the common assumption that fixed contracts always cost more.
